July 5 (Bloomberg) -- China, Hong Kong and India are in a
“high-risk danger zone” because their monetary policies have
stayed too loose over the past four years, according to Nomura
Holdings Inc.

A June 28 report by the bank’s economists and strategists
showed the average ratio of domestic private debt to gross
domestic product across Asia had ballooned to 167 percent in
2012 and most of the region’s property markets are “frothy.”
The debt ratio has increased by over 50 percentage points in
Hong Kong and Singapore and between 30 and 40 points in
Malaysia, South Korea, China and Thailand.

A measure of monetary policy based on output gaps and
inflation shows that interest rates have also been persistently
below what economic models suggest, and even more so if the
financial cycle is accounted for, the report said.

That leaves countries financially vulnerable. Indonesia is
at the lower end of the high-risk zone, while South Korea,
Malaysia, Singapore and Thailand are in the middle-risk range,
ahead of Japan. The Philippines and Taiwan seem the least prone
to any economic crisis. Hong Kong is a Special Administration
Region of China although it pegs its currency to the dollar.

Investors are set to begin differentiating between
economies throughout the region once the Federal Reserve begins
pulling back stimulus, the Nomura report said. Their preference
will be for sustainable expansion rather than fast growth.

The risk is Asian policy makers are falling into the same
trap as their U.S. and European counterparts did prior to the
global financial crisis and as Asia did in the 1990s: “That is,
keeping policies too loose by focusing too much on the standard
business cycle and low inflation and not enough on the financial
cycle,” said Nomura.

* * *

Egypt has a 3 percent chance of losing democracy in any
given year because of its low income levels, according to
Renaissance Capital Ltd.

An army-appointed interim president took office in Cairo
yesterday, hours after Mohamed Mursi was ousted as the country’s
first democratically elected civilian leader. In a June 22
report, Renaissance economists led by Charles Robertson said the
risk that democracy can’t be taken for granted is because
Egypt’s per capita GDP of $5,000 leaves it in a similar position
to Tunisia in 2003 or Turkey in 1975. Based on a study of 150
countries with a population above 500,000 from 1950 to 2009,
democracy is only “immortal” once income tops $10,000 per
head.

“Egypt at least has energy to export, but its high budget
deficit and public debt ratios represent risks, and these may
worsen as newly elected governments may not feel comfortable
reducing subsidies,” Robertson and colleagues said.

As with Turkey in the 1970s, any Islamic-minded government
may find it hard to manage relations with a more secular
military, the report said.

* * *

How much competition there is among euro-area banks helps
determine how well the European Central Bank’s low interest
rates flow to consumers and companies, according to a Bank of
Finland study.

Using a group of banks from 12 euro-area members from 2002
to 2010, Bank of Finland economists Zuzana Fungacova and Laura
Solanko, along with the University of Strasbourg’s Laurent
Weill, analyzed the reaction of loan supply to monetary policy
decisions.

They found that the transmission of monetary policy through
the bank lending channel is less pronounced for banks with
market dominance, according to their June study.

“These results suggest that the bank market power has a
significant impact on monetary policy effectiveness,” said the
economists. “Therefore, wide variations in the level of bank
market power may lead to asymmetric effects of a single monetary
policy.”

* * *

Becoming a chief executive officer is enough for business
leaders to increase their political contributions 137 percent.

A study of U.S. elections from 1991 and 2008 published this
week found 1,556 campaign donors who had become CEOs during that
period. Economists Adam Fremeth, Brian Kelleher Richter and
Brandon Schaufele concluded that on becoming the top boss of a
Standard & Poor’s 500 Index company, an executive increased
personal giving by an average $4,029 per election cycle.

“While some fraction of CEOs’ contributions can be
attributed to long-standing preferences, the striking changes in
behavior cannot be explained by these factors alone,” the
economists wrote in this month’s American Economic Journal:
Applied Economics.

* * *

The Bank of Japan may replace the Fed as the world’s
leading provider of liquidity as soon as the first quarter of
next year.

While the Fed is signaling it may begin tapering its $85
billion in monthly bond by the end of this year, the Bank of
Japan is aiming to double its monetary base to 270 trillion yen
by the end of 2014 from 138 trillion yen.

That suggests monthly net asset purchases of 5.5 trillion
yen, about $56 billion at current exchange rates, Capital
Economics Ltd. economist Julian Jessop said in a June 27 report.

The question is then whether additional BOJ purchases will
offset the slowing Fed buying. While a dollar’s worth of
additional liquidity at a Japanese bank has the potential to
support markets as much as a dollar at a U.S. financial
institution, there are some caveats, said Jessop.

The BOJ’s buying was announced in April, so some of the
support should already be reflected in markets. The dollar value
of the Japanese program will also fall as the yen does and also
Japanese banks may have a lower propensity to recycle funds into
riskier assets than U.S. counterparts.

“Nonetheless, the Bank of Japan’s plans are another
example of how global monetary conditions are set to remain
loose even if the Fed scales back its own purchases,” said
Jessop.

* * *

Emerging markets need to ramp up infrastructure investment
as they approach middle-income status or risk seeing their
development surge run out of steam, according to Ashmore
Investment Management.

Such economies need to take heed because they are
exhausting their scope to grow as they close in on industrial
rivals, said head of research Jan Dehn in a June 28 report.

Countries that have successfully transitioned to high
income status have typically invested between 30 percent and 40
percent of GDP in roads, bridges, railways and other projects
when their GDP per capita ranged from $2,000 to $15,000.

The average in emerging markets today is 32 percent,
ranging from 21 percent in eastern Europe to 37 percent in Asia.

To aid the shift up, governments should welcome inflows of
cash from capital markets and reduce red tape that restricts
investment, said Dehn.

“How well each individual emerging market adapts to the
new global reality will largely determine who succeeds and who
does not,” said Dehn.

* * *

Italian banks that have the fewest women in top decision-making positions, such as chief executive officer or chairman,
may be making riskier decisions as a result, according to a Bank
of Italy working paper.

The study by Silvia Del Prete and Maria Lucia Stefani found
the number of women at the top is greater in banks belonging to
major banking groups with larger and younger boards and in banks
that are more cost-efficient.

The data show “credit policies are more stringent when
women are on the board, possibly due to their higher risk
aversion,” Del Prete and Stefani said.

* * *

There is no global currency war under way if the price of
Apple Inc.’s iPad Mini is any indication.

A June 27 blog by Benn Steil and Dinah Walker of the
Council on Foreign Relations sought to test the so-called law of
one price, which says identical goods should trade for the same
price in an efficient market.

This is the rule tested by The Economist magazine’s Big Mac
Index, which uses the price of burgers in a common currency to
estimate whether various exchange rates are overvalued or
undervalued. Bloomberg News similarly monitors the price of Ikea
bookshelves.

The weakness in that approach is that the absence of cross-border flows of burgers means prices won’t align
internationally, said Steil and Walker.

The iPad mini has more modern characteristics than a burger
because it is a global product that travels, they said. Apple is
also highly attuned to shifting currency values: Spokesman
Takashi Takabayashi said May 31 that the company raised its
Japanese prices in May to offset the sliding yen, for instance.

The study of 33 countries found excluding sales taxes,
“there are no major violations of the law of one price in the
global market for iPad Minis.”

The Swiss franc may be overvalued and the Malaysian
ringgit undervalued, but the scale in which they are wrongly
valued is much less than the Big Mac index. In China, an iPad
mini sells for 5.6 percent more in dollar terms than in the
U.S., suggesting the yuan may be closer to a correct level than
Big Macs imply.